A Guide to Retirement Plans for the Self-Employed

Just because you’re self-employed doesn’t mean you shouldn’t be building up a savings for when you retire. But many self-employed Americans aren’t making it a priority to save for their retirement. According to TD Ameritrade, nearly 70 percent of America’s 10 million self-employed workers aren’t saving regularly for retirement, and 28 percent aren’t saving at all. However, there are several savings options available for those who are self-employed. Ready to start saving your way toward retirement? Read on for some great account options to look into.

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1. Solo 401(k)

According to Daily Finance, “In a solo 401(k), you can contribute up to $17,500 plus up to 20 percent of your net self-employment income (business income minus half of your self-employment tax), for a maximum contribution of $51,000 for 2013. Your total contributions cannot exceed your self-employment income for the year.”

If you’re 50 or older, you can make catchup contributions to a solo 401(k) of up to $5,500 for a maximum contribution of $56,500. Daily Finance says that most people can set aside more money in a solo 401(k) plan. Check out 401(k) Help Center for a list of plan administrators. Something to keep in mind: Any of your employees who are 21 or older and work more than 1,000 hours per year for you have to be included in the plan.

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If you are a high-earning, self-employed person with no employees, this is a great option for you. According to Forbes, your annual SEP IRA contribution can be as much as 20 percent of your net earnings up to a maximum of $51,000. And a SEP IRA is more simplistic and cheaper to administer than 401(k)s. “A pediatric surgeon client, for example, puts a steady $3,000 a month into a SEP IRA, a number he’s comfortable with based on his lifestyle. Then at tax time, the surgeon sits down with his accountant to confirm that he can make additional contributions to reach the $51,000 max,” reports Forbes.

You do have the option to put a larger contribution in earlier in the year, but in order to do that you need to earn the income to justify the contribution amount. Here are a few rules to keep in mind. The money you put into a SEP IRA counts as an employer contribution, meaning you need to make the same percentage contributions for all covered employees. That even includes part-time employees who are at least 21, have been employed by you for at least three of the past five years, and who earned at least $550 from you last year.

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3. IRA

You could also keep it simple with a standard IRA, which isn’t actually designed for someone who’s self-employed but works nonetheless. You can contribute $5,500 per year (or $6,500 if you’re 50 or older), according to Forbes.

4. Roth IRA

The same contribution limits apply to a Roth IRA that do for a standard IRA. However, couples with adjusted gross income over $188,000 and singles with AGI over $127,000 aren’t allowed to make annual contributions. That doesn’t mean you can’t have a Roth IRA, though. All you have to do is fund a traditional IRA and then convert it into a Roth IRA.

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